Tokenizing Real World Assets: How Does it Actually Work?

According to McKinsey professionals, the tokenized market capitalization across asset classes could reach about $2 trillion by 2030 (excluding cryptocurrencies and stablecoins. This indicates that the digital asset tokenization industry will likely become mainstream. Before this happens, understanding the intricacies of tokenization is a great way to stay ahead of the curve.

In this article, we cover the technical, legal, and economic aspects of RWA tokenization, giving you a deep understanding of the industry and eSync Network’s role in helping to push the boundaries of tokenization.

Let’s dive into the technical side of tokenization first.

Technical Aspects

When it comes to tokenization, technicalities come with the territory, and to many, this can be very daunting. However, before diving into the nitty gritty, you must understand its driving force, which is to enhance liquidity, transparency, and accessibility.

Now, let’s get into it.

Asset Identification

The first step is to decide what real-world asset you wish to tokenize. This is called Asset Identification. Like a chef looking to dazzle his guests, you must first determine what you want to create. It could be anything from real estate and precious metals to art and intellectual property. More than identifying the chosen asset is required; it must be thoroughly assessed to ensure its value can be accurately represented digitally.

Anything can be tokenized, but not everything has value, and If it’s valuable in the real world, it’ll be useful in the digital one.

Select the Tokenization Protocol

The next part is arguably the most important because it involves selecting the tokenization protocol. This part will make or break any real-world asset as it directly affects everything else. There are several tokenization platforms, but the eSync Network, with its track record of partnering with companies like Rocksolid AG (real estate), Habsburg Gemstone (gemstone and jewelry), and more on the way, is a sturdy foundation. It provides the necessary infrastructure to support digital token creation, issuance, and management. eSync Networks offers very fast, and, even more importantly, cheap transactions.

Being on the Blockchain means smart contracts will play a significant part. They play a vital role in the tokenization process by automating the issuance and management of tokens. On the eSync Network, smart contracts can be tailored to include specific rules and conditions related to the asset, ensuring compliance and transparency.

Creating the Digital Token

Now, for the fun part, creating the digital token. In this stage, you’ll need to make your assets easy to divide and trade. This is done by minting a specific number of tokens. Each token is a digital representation of a share or unit of the assets. You also get to pick the name of the token that will act as a representation of your asset. For example, The ROC Token is the name chosen by Rocksolid AG.

Legal Aspects

Like most operations of immense monetary value, the legal aspect has to be fully considered and understood. From novel features like security tokens to legislation within your region.

Security Tokens: What Are They?

Tokenized securities, or security tokens, are digital assets that represent transferred ownership rights or an asset’s value in a blockchain token. They usually derive their value from an external, tradable asset. These tokens represent ownership or interest in a real asset and are subject to federal securities regulations.

After the security token is created, the Security Token Offering (STO) comes. Security Token Offerings (STOs) facilitate digital funding while adhering to government regulations. Unlike regular token exchanges, security tokens require rigorous regulatory compliance due to their nature.

STOs represent digital versions of real-world assets such as bonds, stocks, or gold. This enables businesses to tokenize assets efficiently, providing a secure and compliant capital-raising method.

USA vs EU Laws

The regulatory environment for security tokens varies significantly between jurisdictions.

At the federal level, the US has a mix of bodies that have been highly engaged in bringing financial stability to the crypto market. They include the SEC, CFTC, FTC, IRS, FinCEN, and others. These bodies operate in tandem to make the required cryptocurrency regulations. On the other hand, The European Commission proposed the Markets in Crypto-assets Regulation (MiCA), a body to regulate and establish a framework for crypto-assets within the European Union. MiCA provides a sound legal framework for the crypto-asset markets to develop within the EU and is intended to cover assets, markets, and service providers that slipped through the regulatory net prior to MiCA.

Navigating compliance and regulations in the tokenization space can be challenging. However, partnering with a reputable organization like eSync Network, which specializes in blockchain technology and regulatory compliance, can simplify the journey. With our robust infrastructure and expert network, we guide businesses through the tokenization process, navigating the EU compliance if needed.

Economic Aspects

As stated earlier, tokenization aims to create new, previously unavailable assets and make them accessible to new groups of investors.

This can only be achieved through the primary and secondary markets. The primary market involves the initial issuance and sale of tokens to investors, often through an STO. This is the easy part, as creating and selling tokens on the primary market is only half the story.

If an investor decides to diversify their portfolio by investing in real estate through the STO, they will need to enter a secondary market for profit to be made. The secondary market acts as a platform for trading these tokens post-issuance. This ensures liquidity and allows investors to buy and sell tokens as needed.

Tokenizing the World Together!

Tokenizing real-world assets is a complex process that involves careful consideration of technical, legal, and economic factors. The eSync Network provides a comprehensive platform that simplifies this process, offering robust technical infrastructure, regulatory compliance support, and financial incentives. By leveraging eSync Network’s capabilities, businesses and investors can unlock blockchain technology’s full potential, transforming how assets are managed and traded.

Unlock the potential of your business by tokenizing real-world assets with eSync Network. Learn more today and stay ahead in the digital asset market!

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